Ousted HealthSouth CEO to challenge law

BIRMINGHAM, Ala. (AP)  Fired HealthSouth CEO Rich ard Scrushy will challenge a new corporate corruption law used for the first time against him in a massive fraud case, his lawyers said Tuesday.

Legal experts said such strategies are routine with new laws, but they doubted Scrushy would prevail.

In a meeting with U.S. District Judge T. Michael Put nam, the Scrushy defense team said it would seek to overturn what is known as the Sarbanes-Oxley Act, passed last year in the wake of scandals at Enron, WorldCom and other corporate giants.

The law requires chief ex ecutives and chief financial officers to certify their company's financial statements as accurate and holds them criminally liable for falsehoods. Scrushy, who was chief executive of the rehabilitation services company, is accused of signing off on false earnings reports in a scheme that inflated numbers for his own enrichment.

Scrushy attorney Abbe Low ell declined to give de tails, but he said such a legal challenge is common where a law is being used for the first time.

U.S. Attorney Alice Martin said such a move by the def ense was anticipated, and her office and the Justice Depart ment would work together to defend the new law.

Jeffrey Rudman, an expert in securities litigation at Hale & Dorr in Boston, said some parts of the act were controversial when it passed  particularly aspects that gave the federal government more control over matters normally handled by states.

"But that's a long cry from saying any of Sarbanes-Oxley is unconstitutional," said Rud man.

Paul Lapides, a corporate governance expert at Kenne saw State University near At lan ta, said he expected the law to withstand any attack by Scru shy.

"Sometimes courts refuse to enforce laws. Other times, courts clarify, expand or restrict laws," he said. "I am not concerned about the Scrushy defense team challenging the law. I doubt if the prosecution team is, either."

While Scrushy is currently set for trial Feb. 2, both sides agreed a delay was needed because of the expected challenge to the law and the fact the government has more than 1 million documents to turn over to the defense.

Martin said she would ask the defense to agree to a trial date in August. Lowell was noncommittal on whether that would be acceptable.

Putnam, who is handling pretrial matters for U.S. District Judge Karon Bowdre, said Bowdre wants a trial "sooner, rather than later." But he acknowledged a delay was needed because of the complexity of the case.

Scrushy, 51, faces an 85-count indictment that charges him with conspiracy, wire fraud, mail fraud, securities fraud and money laundering. He is accused of directing accounting fraud at HealthSouth that inflated profit, revenue and assets by $2.7 billion since 1996.

On Wednesday, a federal judge is scheduled to sentence the first five of 15 former HealthSouth executives who agreed to plead guilty to fraud charges in the same case.

Separately, a lawyer for Scrushy disputed an affidavit filed by an Internal Revenue Service that says the former CEO has paid $21 million in legal fees with money obtained through the alleged fraud.

The payments "have been identified as having been made by defendant Scrushy from accounts containing substantial deposits of proceeds from crimes charged in the indictment," IRS agent Charles Traywick said in an affidavit filed Friday.

Scrushy attorney Thomas Sjoblom said his client's legal fees were being paid from money he earned before 1996, when the government alleged Scrushy began orchestrating the fraud.